The report said, the Gujarat government amended the Industrial Disputes Act in 2004 to allow for greater flexibility in the labor market for Special Economic Zones (SEZ). It allowed for companies within SEZs to lay off workers, without seeking the permission of the government, by simply giving a 1-month notice to the worker. In contrast, the West Bengal government, made several pro-worker changes. It changed the laws to make it virtually impossible to shut down a loss-making factory.
Accordingly, Gujarat has experienced a 60 per cent growth in manufacturing employment between 2000-12, while West Bengal has seen only a 22 per cent increase. Goldman Sachs said as a new government takes charge from mid-2014, it sees labor market reforms as a critical ingredient to accelerate India’s economic growth rate.
“If India were to undertake significant reforms in the labor market, the benefits could be quite large,” Goldman Sachs said. In a bull scenario, it projected that India could add some 110 million workers over the next decade. At this level, the number of jobs that India could create would be larger than that of the US, China, Russia, and Brazil combined, Goldman Sachs said.
According to the financial services firm, India’s stringent labor laws are a key factor constraining employment growth and the reforms like simpler labor laws, more flexibility to hire and fire, self certification by the employers, amendment in Trade Union act and faster dispute settlement, are likely to increase flexibility and boost employment. India’s employment growth in recent years has been anaemic. The economy added only about 2 million jobs each year between FY05 to FY12, compared to 12 million a year in the 5 years before this period, it said. “As a labor abundant country, India should be generating jobs in labor-intensive manufacturing,” the report said. India has some 44 labor laws which are enacted by the central government and enforced by both the central as well as state governments. (PTI)